THE FRENCH government yesterday approved what ministers hailed as an unprecedented budget, cutting public spending and closing tax breaks as it tries to reduce a deep deficit.
As protesters took to the streets in Brussels, Madrid and other European cities in opposition to spending cuts, however, President Nicolas Sarkozy’s budget sought to spare French citizens from the levels of austerity planned in other euro-zone states.
The cornerstone of the Bill presented yesterday is a cut in the public deficit to 6 per cent of GDP in 2011 from 7.7 per cent this year – the first phase of a plan to trim the gap to the EU’s 3 per cent ceiling in 2013.
“Never has such a deficit-reduction effort been undertaken,” budget minister François Baroin said.
Having seen its public deficits rise during the recession because of efforts to stimulate the economy, France is keen to repair its public finances in order to retain its coveted triple-A credit rating, which allows it to service its debt at low cost.
But with trade unions running a disruptive campaign against its pension reform plans and a presidential election due in 2012, the government has sought to limit the impact of further austerity measures on the public.
The budget aims to save €15 billion by not renewing some of the stimulus measures announced during the downturn, €10 billion by limiting tax breaks and €7 billion from a temporary job freeze, job cuts and a spending cap in the civil service.
Much of the rest of the deficit cut of close to €40 billion for 2011 comes from extra receipts generated by economic growth anticipated at 2 per cent, though some economists believe that forecast to be too optimistic.
“The strategy excludes any notion of a generalised tax rise, as this would penalise economic growth,” said a statement from the Élysée Palace. Mr Sarkozy made an election promise in 2007 not to raise taxes.
Speaking after the Bill was published, finance minister Christine Lagarde said she hoped the plans for deep deficit cuts next year would reassure financial markets that remain edgy about debt levels in many European countries. “Investors who finance and refinance our debt are extremely attentive to improvement of public finances, as are the rating agencies,” she said.
Opposition to Mr Sarkozy’s plan to raise the minimum retirement age from 60 to 62 has added to the pressure to avoid a painful budget, and ministers have reportedly been banned from using the French word for austerity – rigueur – in public.
Trade unions have twice in the past month brought millions of protesters on to the streets to rally opposition to the pension reform. A majority of French people oppose the reform and are unhappy with the government’s economic policies in general, according to opinion polls, while a BVA poll published yesterday put Mr Sarkozy’s approval rating at 32 per cent, a record low.
Although there was no across-the-board tax rise in the budget, several tax breaks, including those for so-called “triple play” internet, television and telephone contracts and a break for newly married couples, are to end. “This budget increases tax and it’s therefore a genuine austerity plan that is going to reduce the spending needed to support growth,” said Martine Aubry, leader of the Socialist Party.